Verizon: Single And Eager To Mingle – VZ

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Last week's earnings demonstrate how far Verizon (VZ) has come as a leader in the iPhone wars with plenty of tempting hints of emerging growth catalysts ahead.

The stock is still ahead on the news but there is more upside here to capture. Breaking up with Vodafone (VOD)  may have been the best thing the company ever did.

While a few analysts initially groused about slowing wireless growth, a second look at the earnings release quickly revealed more than enough strength here to compensate. VZ still boosted its service revenue by 8.4% over last year and even in the face of fiercer competition on the smartphone side managed to push its EBITDA margins to a record 51.1%.

Most prominently, VZ says it activated 3.9 million iPhones during the third quarter, putting it within striking distance of wrestling the crown of top Apple (AAPL) phone carrier from AT&T (T). 

The iPhone is not the crown jewel it once was even in the increasingly commoditized smartphone space, but achieving this kind of share in a still-prestigious – and lucrative – market segment is still a testament to Verizon's strategic momentum. For a company that some wrote off three years ago for ignoring the emerging Apple ecosystem, the trajectory from zero to signing data contracts on 9% of all new iPhones sold worldwide speaks for itself.

Competitors have fared less well. Sprint (S) never capitalized on its early lead and now pulls in barely a third of the iPhone volume that VZ has built up since 2011. And although many Apple early adopters have stuck with AT&T out of mingled nostalgia and inertia, they have never been shy about complaining when service has been less than perfect.

While the raw growth trend is flattening across the board as a revitalized T-Mobile (TMUS) becomes a more serious player, these are unquestionably high-quality, high-revenue subscribers. Month to month, the typical iPhone user has been pulling 50% to 250% more data off the Verizon network than his or her Android counterpart according to market research firm NPD, and on pay-as-you-go plans that extra gigabyte or two of usage per account can add up fast.

Now that onetime partner Vodafone has sold back its stake in the network for a blockbuster $130 billion, all of this business belongs to VZ alone. I would not be surprised to see the earnings keep forcing Wall Street to upgrade its forecasts: even the bullish analysts were pleasantly surprised to see EPS of 77 cents.

Reports of iPhone shortages should only help front-load the VZ subscriber pipeline for the current quarter and beyond.

And even though VZ is looking at dilution in order to raise that $130 billion to break up with VOD, the business seems to have more than enough untapped value to support it. If 45% of Verizon Wireless was worth that much money to the people who know it best, how long will the sum of the parts on the company that owns the entire operation add up to a current market cap of barely $140 billion?

If anything, the most interesting detail in this 10-Q emphasized that VZ is still more than its wireless operation. Far from moribund, the company's consumer wireline business is actually growing again at a rate of 4% to 5% as families that kept their land line upgrade to value-added FiOS triple play service.

A full 72% of VZ's wireline households are now on the FiOS plan, and migration should remain strong as new offerings like home automation and security roll in and strategic competitors in the cable space lose subscribers over channel fee disputes.

Wireline is now the icing on the big mobile data cake, but VZ is fortunate to have both. I was a big fan of VOD largely because of its stake in this company's success.

Now I will have to watch VZ in its own right.